Lighthouse Sail Makers Manufactures Sails for Sailboats The Fixed Manufacturing Costs Increase by $102,000 for Every 500

Lighthouse Sail Makers manufactures sails for sailboats.The company has the capacity to produce 35,000 sails per year and is currently producing and selling 30,000 sails per year.The following information relates to current production: $$\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 175 \\\hline \text { Variable costs per unit: } & \\\hline \text { Manufacturing } & \$ 62 \\\hline \text { Selling and administrative } & \$ 20 \\\hline \text { Total fixed costs: } & \\\hline \text { Manufacturing } & \$ 700,000 \\\hline \text { Selling and administrative } & \$ 300,000 \\\hline\end{array}$$ The fixed manufacturing costs increase by $102,000 for every 500 units produced beyond the maximum capacity of the plant.If a special pricing order is accepted for 5,500 sails at a sales price of $150 per unit,and if the order requires no variable or fixed selling and administrative costs,what is the effect on operating income?

A) Operating income increases by $382,000.
B) Operating income decreases by $382,000.
C) Operating income increases by $484,000.
D) Operating income decreases by $484,000.

Correct Answer:

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